Important Tax Changes for Commercial Leases in Scotland

By Colin McHardy February 9, 2018

Land and Buildings Transaction Tax (LBTT) replaced Stamp Duty Land Tax (SDLT) in Scotland for land transactions in Scotland, including the grant of commercial and agricultural leases, from 1 April 2015.

The LBTT rules for leases are significantly different to the SDLT rules. In particular, if you are the tenant under an agricultural or commercial lease and if you submitted an LBTT return to Revenue Scotland when you took out your lease, you need to submit additional LBTT returns to Revenue Scotland every three years during the currency of your lease, to cover changes during the previous three years.

There is no three year review process for leases taken out before 1 April 2015, which remain within the Stamp Duty Land Tax system unless and until they are varied or extended, which may bring them into the LBTT regime.

Revenue Scotland will shortly start to issue reminders for the first batch of three yearly lease reviews which fall due on or after 1 April 2018, that being the third anniversary of the introduction of LBTT. Revenue Scotland aims, but cannot guarantee, to issue reminders around three months in advance of when the review return is due, which is thirty days after the third anniversary of taking out the lease

If the rent payable under the lease and/or the term of the lease have been increased during the first three years, additional LBTT may be due, while if the rent and/or term have decreased, an LBTT repayment may be due.

If there have been no changes during the review period, while no additional LBTT will be due, a return is still needed.

A penalty of up to £1,000 may be charged for a late return even if no tax is due. Higher penalties, linked to the tax payable, may be charged where a return is late and tax is due.

If you don’t receive a reminder, the return still needs to be made on time. Revenue Scotland will not accept the absence or non-receipt of a reminder as an excuse for late filing

In addition to the three yearly review return, you also need to submit an additional LBTT return to Revenue Scotland if you assign your lease to someone else or if the lease comes to an end. These requirements have been in place since the introduction of LBTT on 1 April 2015.

The application of LBTT to leases is a complex and involved subject. If you need further information or advice on three year review returns or on other LBTT related issues, Campbell Dallas has extensive experience of advising clients in this area.

If you want to discuss any of the points raised in this blog please get in touch with me here, or:

The information in this blog should not be regarded as financial advice. This is based on our understanding in February 2018. Laws and tax rules may change in the future. Campbell Dallas is not responsible for content contained on 3rd party sites.

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